Page 2 - CIMA OCS August 2018 Day 2 Suggested Solutions

CIMA AUGUST 2018 – OPERATIONAL CASE STUDY

Examples relevant to Thomas Fine Teas are as follows:

• The costs incurred in the evaluation of potential suppliers of tea leaves in order to establish
the extent of their ‘environmental concern’. This IS critical as many of the damaging
environmental effects mentioned in the article occur “upstream” of us in the growing phase.
• Regular maintenance of production machinery, central heating, air conditioning devices to
ensure energy efficiency.

• The cost of redesigning packaging to reduce or eliminate the use of plastics. Note: We should
also check to ensure our tea bags are plastic-free.

Environmental appraisal costs:

Environmental appraisal costs are the costs of those activities undertaken in order to determine
whether products, services and activities are in compliance with environmental policies and
standards.

Examples relevant to Thomas Fine Teas are as follows:

• Monitoring, testing and inspection costs incurred in order to ensure adherence to standards
and internal policies. For example, regular monitoring of energy usage to see if usage is higher
than expected.

• The costs incurred in monitoring supplier performance in relation to their environmental
impact.

Environmental internal failure costs:

These are costs that are incurred after hazardous materials, waste and/or other contaminants
have been produced. The costs are incurred in order to comply with both externally and internally
imposed standards in order to eliminate the environmental impact. These costs are borne
exclusively by the business.

Examples relevant to Thomas Fine Teas are as follows:
• Ensuring any rejected and waste tea is collected and recycled, rather than contributing to
landfill.

Environmental external failure costs:

These are incurred when there are failures of internal control and hazardous materials, waste or
contaminants have been introduced into the environment.
Examples relevant to Thomas Fine Teas are as follows:

• Carbon emissions from distributing teabags from the central production facility. This could be
reduced by having multiple production sites nearer to customers

• It is very difficult for Thomas Fine Teas to monitor the extent to which customers would
recycle packaging or whether they are contributing to landfill. Certainly reducing the use of
plastic packaging could help here.

• Ultimately the cost of failure for Thomas Fine Teas is the potential lost goodwill as a result of
us being deselected by a customer causing a reduction in turnover and profit.

58 KAPLAN PUBLISHING